Shanghai bourse launches tri-party repo business

May 14, 2018Anna Reitman

The first tri-party repo trading was completed in the bond market of the Shanghai Stock Exchange (SSE) on May 9, 2018, symbolizing the official launch of the tri-party repo business of the SSE. On the first day, smooth operation has been seen in the tri-party repo market. Seven institutions, including Tianhong Asset Management, Everbright Securities, Guotai Jun’an Securities, CITIC Securities, GF Securities, Industrial Securities and CIB Fund Management, participated in the trading of tri-party repo business. A total of eight contracts were concluded on that day, with the total trading amount of RMB370 million, the trading period between 1 to 7 days, and the interest rate between 3.0% and 3.3%. Besides, there is repo financing based on interest rate bond basket and high-grade public offering bond basket and that based on such high-grade private placement bond basket as asset-based securities (ABS), presenting a wide range of collateral bond baskets. And all kinds of collateral bonds can engage in financing via the tri-party repo business.

The total repo trading volume of the SSE was RMB243 trillion in 2017 and the average daily trading volume reached nearly RMB1 trillion. Previously, the SSE has launched the collateralized repo and the agreed repo. The former is relatively standard while the latter is more flexible. The tri-party repo is in the middle of them and attempts to seek a balance between safety and convenience by summarizing the experience of over two years of the collateralized repo and agreed repo and asking a third party to make centralized and professional management on collaterals. Besides, compared with the collateralized repo, the collateralized bonds in tri-party repo has been expanded to all kinds of bonds of the exchange, including the non-publicly offered corporate bonds and ABS; and compared with the agreed repo, the standard and discount rate of the collateralized bonds are set up uniformly, and the third party provides the management service for collaterals and the market-to-market service, which will improve the trading efficiency and intensify risk control. In addition, the tri-party repo adopts the investor suitability management and sets up more strict access threshold against a financing party, and participants can make a white list of counter-parties by themselves.